You Do NOT Need a Credit Score

Do you have a credit score? I bet you do. Do you know what you score is? Maybe you do, maybe you don’t. Do you believe that it’s absolutely necessary to have a credit score? Most people do, and they are wrong.

What Is a Credit Score?

First, let’s take a look at exactly what a credit score is and why we have one. The credit score, also known as the FICO score, was started by the Fair Isaac Company (Thus FICO) to gauge a person’s credit worthiness. Your FICO score is basically a number that tells people how good you are at borrowing money.

Your score is determined using these guidelines:

35% is based on your debt history

30% is based on your level of debt

15% is based on how long you’ve been in debt

10% is based on how much new debt you have

10% is based on the types of debt you have

Now, what do all these factors have in common? They all say “Hey I’m in debt, baby!” The higher the score you have means that debtors can trust you so that they can give you more debt and they know you’re more likely to pay it back.

A Zero Credit Score is a Great Thing

But what happens when you have no debt? Well if you’ve been out of debt long enough your credit score can actually go to zero, and that’s a good thing. A zero credit score shows that you have actually achieved something that not many people have, and that something is freedom from the bondage of debt.

But what if you want to buy a house? Even If you are debt free except for your mortgage, a house can be expensive.

Of course the best way to buy a house is with cash, but I'm not going to vilify anyone for taking out a reasonable mortgage. So this is where manual underwriting comes in.

Many people don’t know about this process, and not all lenders provide this option, but it’s what you need in order to get a mortgage when you have a zero credit score because you don’t use consumer credit any more.

Basically manual underwriting is a nonautomated, MANUAL process of figuring out how much the lender thinks they should loan you. Normally the process is automated, they just stick your numbers into the computer and it spits out a number based on what the software says.

The manual underwriting process actually has a human being running the show to determine how much to loan to you.

Guidelines For Manual Underwriting

However, there are certain guidelines that you will have to meet in order to have your mortgage manually underwritten:

Be able to prove that you are paying 4-6 regular bills in a timely fashion over an 18-24 month time period. These can include rent, phone, cell phone, power, water, etc.

You should choose a 15 year conventional fixed rate mortgage.

Have a strong employment history and predictable personal income history.

You must be able to put at least 20% down on the home.

Your previous credit history should have no red flags. Even though you have no credit score, previous history matters.

So yes, you can buy a house with a zero credit score. It’s just a different process. Of course the best way is to pay cash (I know some people that have actually done it), but it usually does take many years of banging away at that mortgage payment to get the house paid off and eventually pay cash for the next one.

Having a Credit Score Is a Choice

Remember, living with a credit score, whether it’s a good score or a bad score, is a choice you make. Do you really want to be the person that creditors like to see coming?

Don’t get me wrong, if you use credit you should be trustworthy in how you use it, so don’t start stiffing your creditors and putting your credit score in the toilet. However, the best thing you can do for yourself and your family is to change your mindset about money and work your plan to pay off all your debts and Celebrate Financial Freedom with the rest of us who have already arrived at that wonderful destination.

If you still want to check your credit score, you can do that on CafeCredit.